Handbook / Starting out on your own

Startup costs for a one-person business: list, estimate, fund

Searching for "startup costs for a small business" returns figures ranging from almost nothing to life savings, because the answer depends on what you are starting. A tutor, a freelance writer and someone opening a mobile food business face completely different numbers. What every new business shares is the method: list the costs, price them honestly, separate what you pay once from what you pay every month, and plan for the months before income is steady. This guide walks through that method.

Step 1: list everything

SBA groups businesses loosely into brick-and-mortar businesses, online businesses and service providers, and lists costs that appear in most of them, including office space, equipment and supplies, communications, utilities, licenses and permits, insurance, legal and accounting help, inventory, salaries, advertising and marketing, market research, printed materials and a website.

For a one-person business, useful headings are:

• Equipment and tools: computer, specialist tools, machinery, vehicle modifications.
• Software and subscriptions: accounting, design, scheduling, storage.
• Supplies and stock: materials consumed in the work or goods for sale.
• Registrations and permits: business license, name registration, entity formation if any.
• Insurance: liability, equipment, vehicle changes.
• Professional help: an accountant or lawyer for setup questions.
• Marketing: simple website, listings, printed materials.
• Training or certification: required qualifications for regulated work.
• Workspace: home office setup, a shared workspace, storage.

Write down everything, even small items. Small items add up.

Step 2: price each item

SBA notes some expenses have clear published costs, such as permits and licenses, while others must be estimated. Get real prices for the largest items: a supplier quote, a published fee schedule, a written insurance quote. For the rest, a careful estimate is fine. Mark which figures are quotes and which are guesses.

Step 3: split one-time and monthly

SBA recommends organising costs into one-time expenses, the initial costs to start such as major equipment and permit fees, and monthly expenses, such as rent, utilities and subscriptions. It suggests counting at least one year of monthly expenses.

A worked example

The figures below are invented for a mobile dog grooming service run by one person who already owns a suitable van:

One-time: van fit-out with grooming table and water system; clippers, dryers and tools; business license and registration; insurance deposit; simple website and printed cards; first stock of shampoos and supplies. Monthly: insurance, phone, scheduling software, fuel and van maintenance, replacement supplies, accounting software, a small marketing budget.

The owner totals the one-time costs, adds twelve months of monthly costs, and has the amount the business needs to be funded for its first year before counting any income. Then they work out how many grooms per month cover the monthly costs. That figure becomes the first sales target.

Step 4: add your own runway

The cost most often left out of startup budgets is the owner's living expenses. Income in the first months is usually lower and less regular than later. Decide how many months of personal expenses you want to have available, whether from savings, a partner's income or a part-time job, and treat that buffer as part of the startup cost.

Step 5: reduce before you fund

Before borrowing or spending savings, look for ways to start smaller:

• Use equipment you already own, and upgrade later.
• Rent or borrow specialist tools until demand is proven.
• Start with a narrower service that needs less kit.
• Buy stock in small quantities until you know what sells.
• Delay design spending until the offer is proven.

Every cost you postpone is money still available if the first plan needs to change.

Keep the receipts

Startup spending is business spending, and it has tax consequences. The Schedule C instructions include business startup costs among the items listed in Part V, other expenses, and SBA notes one-time costs can typically be deducted. The details depend on the type of cost and when the business began, so file every receipt from the start and ask a tax professional how to treat them. Paying startup costs from a separate business account makes the record clean.

Use the startup sheet

The site's startup sheet lets you enter one-time and monthly costs and see the total you need. Fill it in with your list, then revisit it after three months with actual figures. The gap between estimate and reality is the best lesson in costing you will get.

Know the number before you spend it: list, price, split, add a buffer, then cut what can wait.